The Fed ＂skipped＂ the interest rate hike as scheduled, suggesting that it will raise interest rates twice this year.

Reporter Cui Puyu

After raising interest rates 10 times in a row, the Federal Reserve announced on Thursday that it would keep the federal funds rate unchanged in the range of 5%-5.25%, but at the same time said that if the economy and inflation do not cool down further, they will tend to raise interest rates later this year.

Most of them expect to raise interest rates twice this year, and have raised their expectations for growth and inflation in their economic forecasts.

"Keeping the target range unchanged at this meeting will give Committee members time to evaluate more information," the policy statement issued after the meeting read. The interest rate decision was unanimously passed by Fed officials.

At the press conference held after the meeting, Federal Reserve Chairman Powell pointed out that almost all Fed officials believe that it is appropriate to "further" raise interest rates in 2023 to reduce inflation. However, he did not disclose whether the next rate hike will be at the meeting in July.

"Inflation pressure remains high, and there is still a long way to go to bring the inflation rate down to 2%," Powell said. At the same time, he also pointed out that considering the previous rate hike, the Committee believes that it is prudent to keep interest rates unchanged this month, and the suspension is a continuation of the slowdown in policy measures.

"We have recovered a lot of lost land, but the impact of the austerity policy has not yet been fully realized," Powell said.

Since March 2022, the Federal Reserve has implemented the fastest series of interest rate hikes since the 1980s, raising the federal funds rate by 5 percentage points. This year, the central bank slowed down the pace of raising interest rates, raising interest rates by 25 basis points at each of the past three meetings, and the last time was in May.

Previously, it was widely expected that the Fed would "skip" this meeting. Officials prefer the word to "pause" because "pause" means that interest rates may remain unchanged for a long time.

Powell and Philip Jefferson, vice chairman of the Federal Reserve, hinted in their recent speeches that they would stay put at this meeting to give policymakers more time to evaluate the impact of previous interest rate policies and banking pressure.

What is surprising is the "bitmap" of the interest rate path released this time. The figure shows that policymakers expect the median policy interest rate to rise to 5.6% by the end of the year, compared with the forecast of 5.1% in March.

Among the 18 decision makers, 12 people expect the interest rate to be in or above the median range of 5.5%-5.75%. If the interest rate is raised by 25 basis points each time, it means that the interest rate will be raised twice in the remaining four meetings this year. Of the remaining six people, two are not expected to raise interest rates this year, and four are expected to raise interest rates once.

Policymakers have also raised their interest rate expectations for the next few years. It is estimated that the federal funds rate will be 4.6% and 3.4% in 2024 and 2025, respectively, higher than the 4.3% and 3.1% predicted in March.

However, expectations about the future also show that if the outlook for this year remains unchanged, the Fed will cut interest rates by a full percentage point next year. The long-term expectation of the federal funds rate remains at 2.5%.

At the same time, Fed officials raised their economic growth forecast this year from 0.4% in March to 1%. Officials are also more optimistic about the job market this year, and the unemployment rate is expected to be 4.1% by the end of the year, compared with the forecast of 4.5% in March.

Powell pointed out that the current labor market is still very tight. According to the latest data, 339,000 new jobs were created in the United States in May, but the number of job vacancies remained high.

On inflation, Fed officials raised their expectations for core inflation (excluding food and energy) to 3.9%, and slightly lowered their expectations for overall inflation to 3.2%. The expectations in March were 3.6% and 3.3% respectively.

The inflation rate has dropped from last year’s peak, but it is still significantly higher than the Fed’s target level of 2%. The inflation indicator favored by the central bank, the personal consumption expenditure price index (PCE) rose by 4.4% in April, and the core PCE increased by 4.7%.

Another inflation index also shows encouraging signs of slowing down. The consumer price index (CPI) increased by 4% year-on-year in May, the lowest level in more than two years. However, the core CPI rose by 5.3% year-on-year, slightly higher than expected.

Powell said that policymakers still believe that inflation risks tend to go up, but risks that are done too little or too much are "approaching equilibrium"; Once inflation drops significantly, it may "take several years" to cut interest rates.

Affected by the hawkish signal released by the Federal Reserve, the three major US stock indexes all fell in intraday trading, but stabilized after Powell made a statement that no decision had been made on the July meeting. At the close of the day, the Dow Jones index fell 0.68%, or 232.79 points, to 33,979.33 points. The S&P 500 index rose 0.08% to 4,372.59. The Nasdaq index rose 0.39% to 13,626.48.